This paper has been prepared for policy makers interested in establishing or strengthening financial strategies to increase the financial response capacity of governments of developing countries in the aftermath of natural disasters, while protecting their long-term fiscal balances. It analyzes...

Cost-benefit analysis is a standard tool for determining the efficiency of planned projects. But one of the major difficulties in risk mitigation investments is that benefits are by nature uncertain. In this context, the standard approach relying on the average value of benefits may provide an...

Economic theory suggests that countries should ignore uncertainty for public investment and behave as if indifferent to risk because they can pool risks to a much greater extent than private investors can. This paper discusses the general economic theory in the case of developing countries. The...

We examine the optimal hedging strategy with an individual insurance policy, sold at an unfair price, and a fair contract based on an index, which is imperfectly correlated with the individual loss. The tradeoff between transaction costs and basis risk is first analyzed in the expected utility...

The demand for hedging against price uncertainty in the presence of crop yield and revenue insurance contracts is examined for French wheat farms. The rationale for the use of options in addition to futures is first highlighted through the characterization of the first-best hedging strategy in...

This paper extends the classic expected utility theory analysis of optimal insurance contracting to the case where the insurer has a positive probability of total default and the buyer and insurer have divergent beliefs about this probability. The optimal marginal indemnity above the deductible...

The authors examine the performance of the crop insurance scheme in Karnataka, a southern state of India and the second driest state in the country. Their analysis highlights weaknesses in product design, implementation challenges, and operational problems. The authors'finding is that the crop...

This paper analyses the optimal hedging decisions for risk-averse producers facing crop risk, assuming crop yield insurance futures and options can be used. The first-best optimal hedge requires a futures position or an option position proportionate to the individual beta depending on whether...